The State Of Sikkim vs Dr Mool Raj Kotwal

2025 INSC 559 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. OF 2025

IN

(SPECIAL LEAVE PETITION (C) NOS. 23709-23710 OF 2023)

STATE OF SIKKIM AND OTHERS …..APPELLANTS

VERSUS DR. MOOL RAJ KOTWAL …..RESPONDENT

JUDGMENT

J.K. Maheshwari J.

1. Leave granted.

2. Assailing the order dated 27.04.2023 passed in Writ Appeal

No. 8 of 2022 confirming the order dated 08.09.2022 passed in

Writ Petition (C) No. 14 of 2022, by High Court of Sikkim at

Gangtok, the State of Sikkim (in short ‘State’) has filed these

appeals. The discord between the parties is regarding grant of

benefit of leave encashment second time for the period of re-

employment of respondent after attaining the age of

1 superannuation, in particular beyond the maximum period of 300

days as prescribed.

3. Being aggrieved by the order dated 21.05.2020 cancelling the

order dated 31.05.2019 to grant leave encashment and directing

payment of sum as sanctioned, the respondent preferred writ

petition before the High Court. Learned Single Judge allowed the

same relying upon Rule 36 read with Rule 32 of ‘Sikkim

Government Services (Leave) Rules, 1982’ (in short ‘Leave Rules’),

declaring him entitled for grant of leave encashment again for

unutilized leave during the period of re-employment. On filing the

Writ Appeal by State, it came to be dismissed by the impugned

order. Hence the present appeals by State challenging both orders

passed by learned Single Judge and Division Bench.

FACTS IN BRIEF

4. Prequel to the present litigation, the respondent was

appointed on deputation in year 1980 in the State services. On

attaining the age of superannuation 1, he retired on 31.01.2005 in

terms of Rule 982 of Sikkim Government Service Rules, 1974 (in

short ‘Service Rules’) from the post of ‘Medical Advisor and Chief

1 58 years.

2 Retirement on superannuation.

2 Consultant’, working at Sir Thutob Namgyal Memorial (STNM)

Hospital, in Health Care, Human Services and Family Welfare

Department, Government of Sikkim at Gangtok. Upon his

retirement and while settling post retiral benefits, he was paid

leave encashment maximum of 300 days unutilized leave as

prescribed in Rule 363 of Leave Rules.

5. After retirement, the respondent was re-employed on the

same post for a period of 2 years, w.e.f. from 01.02.2005 to

31.05.2005, which was extended time to time upto 28.05.2019,

i.e., the date on which he was officially relieved. Vide Office Order

No. 710/G/DOP dated 31.05.2019 (in short ‘2019 office order’),

he was allowed cash equivalent to leave salary of 300 days of

earned leave standing to his credit for the period of re-employment.

6. The controversy was set into motion when the State on

scrutiny found that the Leave Rules do not provide for grant of

leave encashment to the re-employed employees second time

beyond 300 days, which was paid to them once on their retirement.

It was noticed that, leave encashment was being paid to the

employees after their retirement and ‘again’ after relieving from re-

employment, though it was not in conformity to the Leave Rules.

3 Cash payment in lieu of unutilized earned leave on the date of retirement.

3 The State Government took a decision to correct the perpetual

mistake and issued Office Memorandum No. 4528/GEN/DOP,

dated 27.02.2020 (the “clarificatory order”), clarifying that

maximum of 300 days of leave encashment specified in Rule is

inclusive of the period of leave earned during extension of service,

re-employment etc. The said clarification is pivotal to the

controversy involved, hence, reproduced as under –

“GOVERNMENT OF SIKKIM DEPARTMENT OF PERSONNEL GANGTOK

No. 4528/GEN/DOP Dated: 27/02/2020

OFFICE MEMORANDUM

Subject: Clarification on leave encashment of earned leave to Government Employees on Extension of Service, Re-Employment etc.

Rule 36 of the Sikkim Service (Leave) Rules, 1982 provides to a government employee who retires from service under the Sikkim Government Service Rules, 1974, cash equivalent of leave salary in lieu of earned leave on full day standing at his/her credit on the date of his retirement subject to a minimum of 300 days. Therefore, a maximum of 300 days of earned leave due at credit also includes the period of leave earned by a Government Employee during extension of service, Reemployment etc.

This issues with the approval of Competent Authority.

Sd/-

4 (Tashi Cho Cho) SCS SPECIAL SECRETARY TO THE GOVERNMENT”

7. After clarification, on 31.05.2019, order extending the benefit

of cash equivalent to leave salary in lieu of 300 days of unutilized

leave standing at the credit of Mr. M.R. Kotwal, Principal Medical

Advisor (Petitioner before High Court/Respondent herein) during

the period of his re-employment was cancelled vide order dated

21.05.2020 passed by the Government of Sikkim, Department of

Personnel, Gangtok. The representation made by the respondent

was also rejected on 18.02.2022 and the Chief Accounts Officer,

Home Department, Government of Sikkim, vide letter No.

GOS/Home/Acctt./726 dated 21.03.2022 sent the information

that payment of leave encashment as prayed by the respondent

cannot be released. That is how the dispute arose, and litigation

commenced.

8. Being aggrieved, the respondent preferred Writ Petition (C)

No. 14 of 2022 seeking writ in the nature of mandamus and prayed

for quashment of the Office Order No. 493/G/DOP dated

21.05.2020 issued by Department of Personnel, Government of

Sikkim, and letter no. GOS/Home/Actt./726 dated 21.03.2022

and to declare that the respondent is entitled to receive Rs.

5 20,51,100/- towards leave encashment alike similarly placed other

re-employed employees.

9. Learned Single Judge allowed the Writ Petition observing that

Leave Rule 36 should be read in conjunction with Rule 32, making

the Leave Rules applicable to the re-employed government

servants. The phrase ‘retires from service’ in Rule 36 is broad

enough and includes the re-employed employees. It is noted that

after an order allowing to receive cash equivalent for 300 days,

withdrawal of such benefit by a subsequent office memorandum is

arbitrary. The clarificatory order couldn't nullify the right accrued

to the petitioner. While allowing the Writ Petition, the Court did

not accept the argument of the State about financial burden

because other similarly placed employees have been extended

similar benefit of second time leave encashment.

10. Being aggrieved, the appellants preferred the writ appeal

which came to be dismissed by the Division Bench observing that

Rule 32 of the Leave Rules creates a legal fiction treating re-

employed and regular employee at par as if former had entered into

service for the first time, and made the Leave Rules applicable, and

consequently held that Rule 36 applies to re-employed government

servants also. The Court refused to interfere with the judgment of

6 learned Single Judge and noted that no palpable infirmity or

perversity warranting interference in intra-court appeal is made

out.

ARGUMENTS ADVANCED BY APPELLANT – STATE

11. Mr. Sameer Abhyankar, learned counsel representing the

appellants extensively urged that Leave Rule 36 prescribes leave

encashment maximum of 300 days after retirement on attaining

the age of superannuation as specified in Service Rules. It was

noticed that employees who were re-employed after retirement

were availing benefit of leave encashment of the leave available in

their credit after being relieved. On examining the issue, the

government found that grant of such benefit is not as per the spirit

of Rule 36 of Leave Rules, therefore, issued the office

memorandum dated 27.02.2020 clarifying the same. In

consequence to the clarificatory order, the benefit of leave

encashment allowed to the respondent was cancelled vide order

dated 21.05.2020. Accordingly, after availing the benefit of leave

encashment of maximum of 300 days on retirement, he was not

found entitled to same benefit for the period of re-employment. He

submitted that the findings of learned Single Judge in reference to

Rule 36, re-affirmed by the Division Bench are not in conformity 7 to the real intent and object to grant benefit of leave encashment

under Rules to the retired employees. Rule 32 and Rule 36 of Leave

Rules deal with different spheres and they cannot be read in

conjunction, therefore, the interpretation as made in the impugned

judgment is not correct. On independent reading of Leave Rule 36,

it is clear that a person who has attained the age of retirement as

per Service Rules, i.e., 58 years, would be entitled for leave

encashment maximum up to 300 days. The said rule does not deal

with relieving after the re-employment, rather, it merely deals with

contingency of grant of leave encashment on retirement of an

employee under Service Rules. Therefore, the findings as recorded

by the learned Single Judge and affirmed by the Division Bench

misinterpreting the formula of granting leave encashment to an

employee after retirement, require due indulgence and interference

in these appeals and interpretation of the rules in right

perspective.

ARGUMENTS ADVANCED BY RESPONDENT – EMPLOYEE

12. Per contra, learned senior counsel Mr. A. Mariarputham for

the respondent submits that on relieving from re-employment,

sanction of leave encashment was allowed vide office order dated

31.05.2019. The same was cancelled vide order dated 21.05.2020

8 relying on the office memorandum dated 27.02.2020, without

notice and affording an opportunity of hearing. Further, the

rejection of representation is discriminatory and violates Article 14

of the Constitution of India because similarly situated other re-

employed relieved employees have been allowed the same benefits.

In addition, the order cancelling the benefit of leave encashment is

in violation of the principles of natural justice and without

affording opportunity of hearing, the action of the State was unfair

which has rightly been interfered with by the High Court.

13. It is further urged that Rule 32 applies to the re-employed

government servants alike an employee entered into service at first

instance. Leave Rule 36 also applies to the employees on whom

Leave Rules are applicable, however, on conjoint reading, the grant

of benefit of leave encashment, again to re-employed employee is

not prohibited. Thus, pretext taken to rectify the mistake by the

State Government cannot defeat the right of the re-employed

employees conferred under the Leave Rules. It is urged that two

Courts have rightly dealt with the interplay of Rules 32 and 36 of

Leave Rules and it does not call for any interference.

ANALYSIS AND REASONINGS

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14. After having heard learned counsels at length and on perusal

of the material, in our view, the short question falls for our

consideration is, ‘whether an employee of the State who had

availed the benefit of leave encashment maximum of 300 days once

on attaining the age of superannuation under Rule 36 of Leave

Rules, can further be entitled for leave encashment again on

relieving after the period of re-employment?’

15. Prior to adverting to the issue and the submissions on merits,

it is necessary to refer the relevant Rules governing the controversy

involved in the present case. The retirement on attaining the age

of superannuation has been prescribed in the Service Rules and

the relevant Rules are reproduced below for ready reference –

“Sikkim Government Service Rules, 1974

98. Retirement on Superannuation –

(1) The date of retirement on superannuation of any Government Servant in the regular service shall be the afternoon of the last day of the month in which he attains the age of 58 years. The Government retains the right to change the prescribed age of retirement.

Provided that the Government Servant who had attained the age of 58 years or more on the date of issue of this Notification shall retire from the service with effect from the afternoon of 31st October 1983.

xx xx xx xx

10 Explanation. – For the purpose of this rule, a Government Servant whose date of birth falls on the first day of any month shall have attained the age of fifty-eight years on the afternoon of the last day of the preceding month.

xx xx xx xx

102. A Government Servant, who is retired according to the provisions of rule 98, may be re-employed by the Government if it is satisfied that such employment is definitely in the interest of the Government and that the Government Servant is physically and mentally fit. The period for reemployment shall be determined by the Government.

Provided that the day fixed plus the retiring pension shall not, on the day of re-employment, exceed the pay last drawn by the Government Servant before retirement, and also that the pay plus the retiring pension shall not, at any time, exceed the maximum of the pay scale of the post held by him during the period of re-employment.”

The said Rule 98 deals with superannuation from regular

service and specifies the date of retirement which would be the

afternoon of the last day of the month on which the employee

attains the age of 58 years. Therefore, the emphasis can be

gathered from the word ‘date of retirement’, ‘from regular service’,

‘the last day’ and ‘on which the employee attains 58 years’.

Further, as per Rule 102, if an employee has retired under Rule

98, he/she may be re-employed if such re-employment is in the

interest of government and retired government employee is

11 physically and mentally fit. Therefore, the re-employment is not a

right of the retired employee, but on the discretion and may be

exercised if service of an employee is required in public interest by

the government.

16. The leave encashment is governed by Sikkim Government

Services (Leave) Rules, the relevant rules thereof are reproduced

below:-

“Sikkim Government Services (Leave) Rules, 1982

6. Earning of leave –

Save as otherwise provided in these rules, leave shall be earned for the period for which a Government servant is on duty only.

Explanation I. – Duty includes period of casual leave, departmental examination leave under rule 25, in service training joining time, quarantine leave but does not include the periods of Extraordinary leave, examination leave, study leave, maternity leave and all other kinds of leave including special disability leave for accidental injury.

Explanation II. – For the purpose of this rule the period spent on deputation to autonomous bodies, public undertakings shall count as duty only if contribution towards leave salary and pension are paid either by the borrowing employer or the government servant.

17. Earned leave for Government servants serving in departments other than the vacation department –

12 (1) Save otherwise provided in rule 27, all Government servants shall be eligible for earned leave on full pay to the extent on one-eleventh of the period spent on duty.

(2) In addition, a Government servant shall be entitled to half pay leave of 20 days in respect of each completed year of service which may be granted on medical certificate or on private affairs.

Note – A Government servant shall cease to earn or accumulate leave under sub-rule (1) above when earned leave at credit exceeds 300 days.

18. Calculation of earned leave –

In calculating earned leave referred to in sub-rule (1) of rule 17, the actual number of days of duty shall first be counted and then multiplied by 1/11 and the product expressed in days. The fraction in the earned leave shall be rounded off to the nearest day that is fraction below half a day shall be ignored and that a fraction exceeding half a day or more shall be reckoned as one day.

31. Leave during a period of extension of service –

Where the services of a government servant has been extended in the interest of public service beyond the date of his retirement, such government servant may be granted earned leave subject to a maximum of 300 days, as follow –

(i) during the period of extension, any earned leave due in respect of that period of such extension and, to the extent necessary, the earned leave which could have been granted to him under sub-rule (2) of rule 28 had he retired on the date of retirement;

(ii) after the expiry of the period of extension –

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(a) the earned leave which could have been granted to him under sub-rule (2) of rule 28 had he retired on the date of retirement decreased by the amount of such leave availed of during the period of extension; and

(b) any leave earned during the period of extension as has been formally applied for a preparatory to final retirement in sufficient time during the extension and refused to him on account of the exigencies of the public service.

32. Leave during a period of re-employment after retirement – In the case of a Government servant re-employed after retirement, the provisions of these rules shall apply as if he had entered government service for the first time on the date of his re-employment.

xx xx xx xx

36. Cash payment in lieu of unutilized earned leave and half pay leave on the date of retirement –

The Government may sanction to a Government servant who retires from service under the Sikkim Government Service Rules, 1974, cash equivalent of the leave salary in lieu of the period of earned leave on full pay standing at his credit on the date of his retirement subject to a maximum of 300 days.”

17. On bare reading of the Leave Rules, it is clear that

government servant may earn leave for the period on which he is

on duty. Under Rule 17, a government servant in department may

be eligible for earned leave on full pay to the extent of 1/11 th of the

14 period spent on duty. In addition, he may also be entitled 20 days

half-pay leave in each calendar year on medical ground or on

private affairs. The note appended to it makes it clear that on

accumulation of maximum of 300 days of earned leave, it may not

be accrued in leave account of an employee. Rule 18 has relevance

to the extent of how calculation of the earned leave can be made

for the purpose of Rule 17(1).

18. Rule 31 applies for extension of service which is not specified

in Rule 102 of the Service Rules. Thus, a government servant

whose service is extended may be granted earned leave subject to

a maximum of 300 days including the extended period of service.

Therefore, in case of extension of service, Leave Rule 36 applies

with a rigor that on adding the period of extension of service, leave

encashment beyond 300 days is not permitted. As per Rule 32 of

the Leave Rules, if the government servant is re-employed after

retirement, the provision of Leave Rules shall apply as if he had

entered in government service for the first time on the date of re-

employment for the purpose of granting leave during the period of

re-employment. To understand the inter-play of these rules, it's

important to examine them carefully.

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19. Rule 36 quoted as above consists of two limbs – (i) the

retirement of the government servant ought to be under Sikkim

Government Service Rules, 1974 and; (ii) the earned leave on full

pay standing at his credit on the date of retirement, maximum of

300 days may be granted. On fulfillment of these twin

requirements, the retired government servant may be allowed cash

equivalent to leave salary at his credit for leave encashment

maximum upto 300 days.

20. On analysis of the first limb as indicated, it is clear that the

government servant ought to retire under the Service Rules. The

government servant as specified in Leave Rule 36 for sanction of

earned leave are those who are in regular service as employed in

terms of the Service Rules. The re-employed government servants

are not included in the said Rule, however, inclusive benefit of

leave encashment may be available only to those employees whose

services have been extended as per Rule 31 of Leave Rules, subject

to a maximum of 300 days. It is not out of place to note that Rule

99 of Service Rules deals with compulsory retirement in public

interest and Rule 99A with voluntary retirement. The former may

be on discretion of the government analyzing the utility of service

16 in public interest, while later on a choice or request of the employee

to continue in regular service after completion of 20 years.

21. The re-employment in the service has been prescribed in Rule

102 of Service Rules, by which, the government servant who stood

retired under Rule 98 but not under Rules 99 or 99A, on the

discretion of the government. In the said rule, the entitlement of

salary has also been prescribed. After perusal of the above referred

rules, mere applicability of Leave Rule 32 would not ipso facto

bring an employee within the connotation “government servant” to

whom Leave Rule 36 applies. The said fact is discernable from the

language employed in Leave Rule 32 which specifies “government

servant re-employed after retirement” and “the provision of these

rules shall apply as if he had entered in government service for the

first time on the date of his re-employment”. So, Leave Rule 36

shall apply to those government servants who were in regular

service prior to their retirement upto attaining the age of

superannuation, i.e., 58 years.

22. The second limb of Rule 36 of Leave Rules makes it clear that

an employee may get cash equivalent of the period of earned leave

on full pay maximum of 300 days at his credit on the date of

retirement. Meaning thereby, the benefit of cash equivalent to leave

salary which is in other words known as leave encashment, is 17 available on retirement to a regular government servant, maximum

upto 300 days, inclusive of those whose service has been extended

and for the purpose of Rule 31 of Leave Rules. The language of

Leave Rule 36 makes it clear that the unutilized earned leave

which is in the credit of the employee on the date of retirement,

including extension of service, maximum upto 300 days may be

granted. By using the words “the government may sanction to a

government servant who retires from service under the Sikkim

Government Service Rules, 1974”, makes the legislative intent

clear that the government servant can get leave encashment on

retirement from regular service and not on relieving after re-

employment. Thus, after granting leave encashment once on

retirement to a maximum of 300 days, the employee cannot get

benefit of leave encashment second time in lieu of his relieving on

completing the period of re-employment.

23. The language of Leave Rule 32 makes it clear that grant of

leave during the period of re-employment shall be alike a new entry

of an employee in service on the date of re-employment, whereas,

Leave Rule 36 specifies cash payment of un-utilized earned leave

and half pay leave on the date of retirement of a regular

government servant subject to a maximum of 300 days. In view of

the foregoing discussion, we have no hesitation to say that, Rule 18 32 cannot be read in a manner to revive the 300 days of unutilized

leave afresh for the re-employed employees who have already

availed the benefit of leave encashment maximum of 300 days

during regular service. As such, there is no interplay of Rule 32

with Rule 36 and both are independent and apply in different

spheres. The unutilized leave in credit beyond period of 300 days

during re-employment would not be inclusive for leave encashment

under Rule 32 of Leave Rules. Therefore, in our view Rule 36

cannot be read in conjunction to Rule 32.

24. In view of the above discussions, learned Single Judge was

not correct to interpret Rule 32 and 36 by applying deeming fiction

for the re-employed government servant. Hence, those findings

cannot be countenanced, and the Division Bench erred in

affirming the same. In our opinion, Leave Rule 32 does not ipso

facto deal with the applicability of Leave Rule 36 for grant of leave

encashment.

25. In the said sequel, the philosophy and purpose of granting

encashment of unutilized earned leave also warrants attention.

Leave encashment is a legal entitlement that exists within the

framework of service law and in the welfare of the employee. It

allows employees to receive a monetary benefit in exchange for

leave they have earned but not taken during regular employment. 19 This right is based on the principle of deferred compensation to an

employee who has not taken leaves and served, for which the

employer must compensate not only for his/her work, but also for

benefits of leave accumulated over time limited to 300 days

maximum. This entitlement is often established in statutory

provisions, service rules (such as Rule 36 of the Leave Rules) or

employment contracts, ensuring that employees are fairly

compensated for their unutilized leave.

26. A three-judges Bench of this Court in ‘State of Rajasthan

and Another Vs. Senior Higher Secondary School,

Lacchmangarh and Others’4, although in context of Section 29

of Rajasthan Non-Government Education Institutions Act, 1989,

interpreted Leave Encashment as ‘nothing but salary for the un-

availed leave to the credit of the employee’. Nonetheless, something

more is required to understand the full import behind grant of

Leave Encashment, which is the benefit after retirement to a

devoted employee. Jurisprudentially, leave encashment is

grounded in two key principles: equity and economic security. The

principle of equity ensures that employees who forgo their right to

take leave for the benefit of the organization are not deprived of its

4 (2005) 10 SCC 346, (Para 21) 20 monetary value. The principle of economic security treats leave

encashment as a form of deferred wages, similar to gratuity or

pension benefits. This reinforces the employer’s duty to maintain

fair labour practices and protects employees’ financial rights.

27. Interpreting leave encashment provisions goes beyond

financial compensation and connects to broader legal principles of

dignity and welfare during service. However, such interpretations

must carefully balance the interests of both employees and the

financial stability of the organization, especially when public

exchequer is involved. Courts must tread carefully to prevent

employees from claiming leave encashment multiple times for the

same accrual, which could lead to unjust enrichment and may go

against the public interest of largesse.

28. Therefore, while leave encashment ensures that extra-

ordinary work ethic of an employee is rewarded, it must be applied

in a way that upholds both employee rights and institutional

sustainability. Naturally, courts must interpret leave encashment

rules and statutes in a manner that prevents undue financial

burden on employers while ensuring that employees receive what

they are lawfully entitled to.

29. Thus, Leave Rules recognize benefit of leave encashment to a

government servant whose service has been extended and who has 21 retired from regular service under the Service Rules, but not to the

re-employed retired government servant. Therefore, the leave

encashment is permissible maximum upto 300 days of leave and

not beyond as on the date of retirement, including the case of

extension of service.

30. In view of the discussions made hereinabove, in our

considered opinion, clarificatory order issued by State in the

matter of grant of leave encashment for the earned leave to

government employees on ‘extension of service’ subject to

maximum period of 300 days and not beyond, is completely in

consonance with the spirit of Rules 31, 32 and 36 of Leave Rules.

31. In the present case, the respondent was in the regular

employment and superannuated on completion of 58 years of age

on 31.01.2005 under Service Rules. He was granted benefit of

leave encashment maximum of 300 days under Rule 36 of the

Leave Rules. On re-employment, he was continued for more than

14 years and relieved on 28.05.2019. On relieving after re-

employment, the benefit of leave encashment was again

sanctioned on 31.05.2019. The government on realising the

mistake and interplay of Rules 32 and 36 with the spirit of the

Leave Rules, issued clarificatory order on 27.02.2020 denying the

22 benefit of leave encashment beyond 300 days, is in consonance

with the spirit of Rule 36, which is just and reasonable to the

extent as indicated above. Therefore, cancellation of sanction of

leave encashment order dated 31.05.2019 is also in consonance to

the law.

32. Lastly, it is impressed upon that the leave encashment

benefit granted to the respondent has been cancelled without

affording due opportunity, and in violation of natural justice. In

our view, the said argument appears attractive on first blush, but

of no substance. When the respondent is unable to justify his claim

of leave encashment and unable to set forth his right even allowing

him reasonable opportunity, in our view, no prejudice was caused

in cancelling the order granting leave encashment second time. As

such, the argument of not granting an opportunity and violation of

natural justice is hereby repelled.

33. In view of the foregoing, the irresistible conclusion can be

drawn is that, under Rule 36 of Leave Rules, a regular government

servant, if retires under Sikkim Government Service Rules, 1974

would be entitled for leave encashment maximum for 300 days. If

the government servant is re-employed after 58 years of age and

continued for a long time and get leaves accumulated during the

23 period of re-employment, he/she cannot get benefit of leave

encashment second time merely because he/she is having leave in

his/her credit during the period of re-employment. Consequently,

the orders passed by the learned Single Judge and the Division

Bench stand set-aside and both these appeals stand allowed. The

pending application(s), if any, shall also stand disposed of. In the

facts, there is no order as to costs.

…….…………….…………J. (J.K. MAHESHWARI)

…….…………….…………J. (RAJESH BINDAL)

NEW DELHI;

APRIL 23, 2025.

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